Business ethics are the moral principles and values that guide decisions made in a business setting. It is a necessary component of business operations because employees, customers, suppliers, shareholders and the community all expect companies to act ethically. Not adhering to ethical standards can lead to legal consequences, financial losses and damage a company’s reputation.

One of the main reasons why business ethics is unavoidable is because it closely relates to the legal system and regulations that companies must adhere to. Laws and regulations are based on ethical principles, such as transparency, fairness and honesty. A company must abide by these laws or risk losing their business license or face fines.

Additionally, a business needs to follow its ethical principles in order to maintain trust and credibility with their stakeholders. Stakeholders include employees, customers, investors, the community a company is part of and the families of employees. A company should treat all of its stakeholders with compassion, respect and fairness.

The drawback to business ethics is that it can limit a company’s ability to maximise profit. For example, if a company has to pay workers in developing countries a reasonable wage and comply with local labor laws, they will not be able to cut costs by producing goods in factories that employ child labour and pay workers very little money.

Business ethicists are starting to recognise this issue and some are embracing new ideas like moderation, pragmatism and minimalism in an attempt to make their analyses more practical. This is a good thing because managers need to be able to understand the world in which they operate and this understanding is key to forming effective ethics policies.